Seminar 2.docx - 3106AFE Revenue Law Trimester 2 2017...

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3106AFE Revenue Law Trimester 2, 2017 Seminar 2 Question 1 Jane works full-time as a teacher at Holland Park Primary School. Jane also grows seedlings and plants in her spare time and sells them at the local craft market. As Jane is a regular seller of plants at the craft market she pays an annual stall fee of $500. In July 2016, Jane purchased a house that has a small plant nursery attached, plus the adjacent plot of land, which is currently undeveloped and covered in bush. Jane intends developing the adjacent land into a garden in her spare time so that she can grow and sell larger plants. The previous owner is a commercial plant nursery operator and agrees to sell Jane her old nursery equipment for $8,350. Both the house and the nursery equipment are more expensive then Jane can afford, and consequently, she takes out a substantial mortgage to cover these costs. Jane now spends almost all of her spare time working in the nursery for both her personal enjoyment and to cover her mortgage costs. In March 2017, Jane is approached by a property developer who wishes to purchase the adjacent plot of land. In April 2017, Jane accepts their offer of $600,000 as it is ‘too good to refuse’. Jane has kept records of all her income and expenses since beginning to grow and sell plants, and for the year ended 30 June 2017, she made a $28,500 profit from the sale of her plants. Jane continues to work as a teacher and she does not intend to resign from that job and work full-time as a commercial plant nursery operator as she considers growing and selling plants to only be an enjoyable past-time. Required: Advise Jane of the possibility of being assessed with respect to s 6-5 ITAA 1997 in regards to the above transactions. (Discuss this in relation to ordinary income only and ignore any capital gains issues). NOTE: The format of your answer should follow the steps as outlined at item 3.5 in Study Guide Chapter 3, which are demonstrated in Review Activity 3-2 (also in Study Guide Chapter 3) . ISSUE – Are any of the receipts (seedlings/plants, land) assessable as ordinary income? PLANTS 1
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3106AFE Revenue Law Trimester 2, 2017 Jane grows seedlings and plants in her spare time and sells them at the local craft market. If Jane is found to be carrying on a business, then the receipts from the sale of the plants will be assessable as ordinary income under section 6-5 and it will be assessable Step 1: Is there a definition of ‘income from carrying on a business’ in the ITAA? ‘Business’ is defined in s 995-1 ITAA97 as: any profession, trade, employment, vocation or calling, but does not include occupation as an employee’ There does not assist us to work out whether a business is being carried on, BUT from the definition we know that it is possible that Jane MIGHT be carrying on a business because she is …. conducting selling and growing the seedlings for the purpose of profit and is not an employee.
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